Sempra Energy/SDG&E/SoCalGas September 30, 2014 10-Q


  
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM 10-Q
(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended
September 30, 2014
   
 
or
   
[   ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from
    
to
  
     
 
Commission File No.
Exact Name of Registrants as Specified in their Charters, Address and Telephone Number
States of Incorporation
I.R.S. Employer
Identification Nos.
Former name, former address and former fiscal year, if changed since last report
1-14201
SEMPRA ENERGY
California
33-0732627
No change
 
101 Ash Street
      
 
San Diego, California 92101
      
 
(619)696-2000
      
         
1-03779
SAN DIEGO GAS & ELECTRIC COMPANY
California
95-1184800
No change
 
8326 Century Park Court
      
 
San Diego, California 92123
      
 
(619)696-2000
      
         
1-01402
SOUTHERN CALIFORNIA GAS COMPANY
California
95-1240705
No change
 
555 West Fifth Street
      
 
Los Angeles, California 90013
      
 
(213)244-1200
      
         
 
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.
           
 
Yes
X
  
No
  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
           
Sempra Energy
Yes
X
  
No
  
San Diego Gas & Electric Company
Yes
X
  
No
  
Southern California Gas Company
Yes
X
  
No
  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 
Large
accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Sempra Energy
[  X  ]
[      ]
[       ]
[      ]
San Diego Gas & Electric Company
[       ]
[      ]
[  X  ]
[      ]
Southern California Gas Company
[       ]
[      ]
[  X  ]
[      ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
           
Sempra Energy
Yes
    
No
X
San Diego Gas & Electric Company
Yes
    
No
X
Southern California Gas Company
Yes
    
No
X
           
Indicate the number of shares outstanding of each of the issuers’ classes of common stock, as of the latest practicable date.
           
Common stock outstanding on October 31, 2014:
          
           
Sempra Energy
246,218,250 shares
San Diego Gas & Electric Company
Wholly owned by Enova Corporation, which is wholly owned by Sempra Energy
Southern California Gas Company
Wholly owned by Pacific Enterprises, which is wholly owned by Sempra Energy
 
 
 
 
 
 
 
 
SEMPRA ENERGY FORM 10-Q
SAN DIEGO GAS & ELECTRIC COMPANY FORM 10-Q
SOUTHERN CALIFORNIA GAS COMPANY FORM 10-Q
TABLE OF CONTENTS
  
 
Page
Information Regarding Forward-Looking Statements
4
   
PART I – FINANCIAL INFORMATION
  
Item 1.
Financial Statements
6
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
84
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
125
Item 4.
Controls and Procedures
126
     
PART II – OTHER INFORMATION
  
Item 1.
Legal Proceedings
127
Item 1A.
Risk Factors
127
Item 6.
Exhibits
127
     
Signatures
130
     

This combined Form 10-Q is separately filed by Sempra Energy, San Diego Gas & Electric Company and Southern California Gas Company. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes representations only as to itself and makes no other representation whatsoever as to any other company.

You should read this report in its entirety as it pertains to each respective reporting company. No one section of the report deals with all aspects of the subject matter. Separate Part I – Item 1 sections are provided for each reporting company, except for the Notes to Condensed Consolidated Financial Statements. The Notes to Condensed Consolidated Financial Statements for all of the reporting companies are combined. All Items other than Part I – Item 1 are combined for the reporting companies.
 
 
 
 
 
 
 
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
 

We make statements in this report that are not historical fact and constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are necessarily based upon assumptions with respect to the future, involve risks and uncertainties, and are not guarantees of performance. These forward-looking statements represent our estimates and assumptions only as of the filing date of this report. We assume no obligation to update or revise any forward-looking statement as a result of new information, future events or other factors.
 
In this report, when we use words such as “believes,” “expects,” “anticipates,” “plans,” “estimates,” “projects,” “forecasts,” “contemplates,” “intends,” “depends,” “should,” “could,” “would,” “will,” “confident,”  “may,” “potential,” “target,” “pursue,” “goals,” “outlook,” “maintain,” or similar expressions, or when we discuss our guidance, strategy, plans, goals, opportunities, projections, initiatives, objectives or intentions, we are making forward-looking statements.
 
Factors, among others, that could cause our actual results and future actions to differ materially from those described in forward-looking statements include
 
§  
local, regional, national and international economic, competitive, political, legislative and regulatory conditions and developments;
 
§  
actions and the timing of actions, including issuances of permits to construct and licenses for operation, by the California Public Utilities Commission, California State Legislature, U.S. Department of Energy, Federal Energy Regulatory Commission, Nuclear Regulatory Commission, Atomic Safety and Licensing Board, California Energy Commission, U.S. Environmental Protection Agency, California Air Resources Board, and other regulatory, governmental and environmental bodies in the United States and other countries in which we operate;
 
§  
capital markets conditions, including the availability of credit and the liquidity of our investments;
 
§  
the timing and success of business development efforts and construction, maintenance and capital projects, including risks in obtaining permits, licenses, certificates and other authorizations on a timely basis and risks in obtaining adequate and competitive financing for such projects;
 
§  
delays in the timing of costs incurred and the timing of the regulatory agency authorization to recover such costs in rates from customers;
 
§  
inflation, interest and exchange rates;
 
§  
the impact of benchmark interest rates, generally Moody’s A-rated utility bond yields, on our California Utilities’ cost of capital;
 
§  
energy markets, including the timing and extent of changes and volatility in commodity prices;
 
§  
the availability of electric power, natural gas and liquefied natural gas, including disruptions caused by failures in the North American transmission grid, pipeline explosions and equipment failures and the decommissioning of San Onofre Nuclear Generating Station (SONGS);
 
§  
weather conditions, natural disasters, catastrophic accidents, and conservation efforts;
 
§  
cybersecurity threats to the energy grid and the confidentiality of our proprietary information and the personal information of our customers, terrorist attacks that threaten system operations and critical infrastructure, and wars;
 
§  
risks inherent with nuclear power facilities and radioactive materials storage, including the catastrophic release of such materials, the disallowance of the recovery of the investment in, or operating costs of, the nuclear facility due to an extended outage and facility closure, and increased regulatory oversight;
 
§  
risks that our partners or counterparties will be unable or unwilling to fulfill their contractual commitments;
 
§  
risks posed by decisions and actions of third parties who control the operations of investments in which we do not have a controlling interest;
 
§  
business, regulatory, environmental and legal decisions and requirements;
 
§  
expropriation of assets by foreign governments and title and other property disputes;
 
§  
the impact on reliability of San Diego Gas & Electric Company’s (SDG&E) electric transmission and distribution system due to increased amount and variability of power supply from renewable energy sources;
 
§  
the impact on competitive customer rates of the growth in distributed and local power generation and the corresponding decrease in demand for power delivered through SDG&E’s electric transmission and distribution system;
 
§  
the inability or determination not to enter into long-term supply and sales agreements or long-term firm capacity agreements due to insufficient market interest, unattractive pricing or other factors;
 
§  
the resolution of litigation; and
 
§  
other uncertainties, all of which are difficult to predict and many of which are beyond our control.
 
We caution you not to rely unduly on any forward-looking statements. You should review and consider carefully the risks, uncertainties and other factors that affect our business as described in this report and in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission.
 
 
 
 
 
 
PART I – FINANCIAL INFORMATION
 

ITEM 1. FINANCIAL STATEMENTS
 


SEMPRA ENERGY
                
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                
(Dollars in millions, except per share amounts)
                
   
Three months ended
Nine months ended
   
September 30,
September 30,
   
2014
2013
2014
2013
   
(unaudited)
REVENUES
                
Utilities
$
 2,463
$
 2,223
$
 7,318
$
 6,889
Energy-related businesses
  
 352
  
 328
  
 970
  
 963
    Total revenues
  
 2,815
  
 2,551
  
 8,288
  
 7,852
EXPENSES AND OTHER INCOME
                
Utilities:
                
    Cost of natural gas
  
 (293)
  
 (261)
  
 (1,308)
  
 (1,182)
    Cost of electric fuel and purchased power
  
 (680)
  
 (537)
  
 (1,761)
  
 (1,461)
Energy-related businesses:
                
    Cost of natural gas, electric fuel and purchased power
  
 (163)
  
 (120)
  
 (427)
  
 (325)
    Other cost of sales
  
 (42)
  
 (47)
  
 (122)
  
 (144)
Operation and maintenance
  
 (726)
  
 (698)
  
 (2,131)
  
 (2,162)
Depreciation and amortization
  
 (292)
  
 (286)
  
 (866)
  
 (828)
Franchise fees and other taxes
  
 (104)
  
 (96)
  
 (301)
  
 (283)
Plant closure adjustment (loss)
  
 ―   
  
 ―   
  
 13
  
 (200)
Gain on sale of equity interests and assets
  
 19
  
 39
  
 48
  
 113
Equity earnings, before income tax
  
 22
  
 3
  
 62
  
 21
Other income, net
  
 29
  
 16
  
 118
  
 79
Interest income
  
 6
  
 5
  
 15
  
 15
Interest expense
  
 (144)
  
 (137)
  
 (418)
  
 (413)
Income before income taxes and equity earnings
                
    of certain unconsolidated subsidiaries
  
 447
  
 432
  
 1,210
  
 1,082
Income tax expense
  
 (71)
  
 (117)
  
 (291)
  
 (327)
Equity earnings, net of income tax
  
 7
  
 8
  
 22
  
 13
Net income
  
 383
  
 323
  
 941
  
 768
Earnings attributable to noncontrolling interests
  
 (35)
  
 (22)
  
 (76)
  
 (41)
Call premium on preferred stock of subsidiary
  
 ―   
  
 (3)
  
 ―   
  
 (3)
Preferred dividends of subsidiaries
  
 ―   
  
 (2)
  
 (1)
  
 (5)
Earnings
$
 348
$
 296
$
 864
$
 719
                   
Basic earnings per common share
$
 1.41
$
 1.21
$
 3.52
$
 2.95
                   
Weighted-average number of shares outstanding, basic (thousands)
  
 246,137
  
 244,140
  
 245,703
  
 243,682
                   
Diluted earnings per common share
$
 1.39
$
 1.19
$
 3.45
$
 2.89
                   
Weighted-average number of shares outstanding, diluted (thousands)
  
 250,771
  
 249,259
  
 250,278
  
 248,723
                   
Dividends declared per share of common stock
$
 0.66
$
 0.63
$
 1.98
$
 1.89
See Notes to Condensed Consolidated Financial Statements.
        



SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in millions)
   
Three months ended September 30, 2014 and 2013
   
(unaudited)
   
Sempra Energy Shareholders' Equity
        
   
Pretax
Income Tax
Net-of-Tax
Noncontrolling
  
   
Amount
(Expense) Benefit
Amount
Interests (After-Tax)
Total
2014:
                    
Net income
$
 419
$
 (71)
$
 348
$
 35
$
 383
Other comprehensive income (loss):
                    
    Foreign currency translation adjustments
  
 (100)
  
 ―   
  
 (100)
  
 (11)
  
 (111)
    Pension and other postretirement benefits
  
 8
  
 (3)
  
 5
  
 ―   
  
 5
    Financial instruments
  
 (4)
  
 1
  
 (3)
  
 3
  
 ―   
    Total other comprehensive loss
  
 (96)
  
 (2)
  
 (98)
  
 (8)
  
 (106)
Comprehensive income
$
 323
$
 (73)
$
 250
$
 27
$
 277
2013:
                    
Net income
$
 418
$
 (117)
$
 301
$
 22
$
 323
Other comprehensive income (loss):
                    
    Foreign currency translation adjustments
  
 5
  
 ―   
  
 5
  
 ―   
  
 5
    Pension and other postretirement benefits
  
 5
  
 (2)
  
 3
  
 ―   
  
 3
    Financial instruments
  
 (5)
  
 1
  
 (4)
  
 (2)
  
 (6)
    Total other comprehensive income (loss)
  
 5
  
 (1)
  
 4
  
 (2)
  
 2
Comprehensive income
  
 423
  
 (118)
  
 305
  
 20
  
 325
Preferred dividends of subsidiaries
  
 (2)
  
 ―   
  
 (2)
  
 ―   
  
 (2)
Comprehensive income, after preferred
                    
    dividends of subsidiaries
$
 421
$
 (118)
$
 303
$
 20
$
 323
See Notes to Condensed Consolidated Financial Statements.



SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (CONTINUED)
(Dollars in millions)
   
Nine months ended September 30, 2014 and 2013
   
(unaudited)
   
Sempra Energy Shareholders' Equity
        
   
Pretax
Income Tax
Net-of-Tax
Noncontrolling
  
   
Amount
(Expense) Benefit
Amount
Interests (After-Tax)
Total
2014:
                    
Net income
$
 1,156
$
 (291)
$
 865
$
 76
$
 941
Other comprehensive income (loss):
                    
    Foreign currency translation adjustments
  
 (141)
  
 ―   
  
 (141)
  
 (12)
  
 (153)
    Pension and other postretirement benefits
  
 21
  
 (8)
  
 13
  
 ―   
  
 13
    Financial instruments
  
 (24)
  
 9
  
 (15)
  
 2
  
 (13)
    Total other comprehensive loss
  
 (144)
  
 1
  
 (143)
  
 (10)
  
 (153)
Comprehensive income
  
 1,012
  
 (290)
  
 722
  
 66
  
 788
Preferred dividends of subsidiary
  
 (1)
  
 ―   
  
 (1)
  
 ―   
  
 (1)
Comprehensive income, after preferred
                    
    dividends of subsidiary
$
 1,011
$
 (290)
$
 721
$
 66
$
 787
2013:
                    
Net income
$
 1,054
$
 (327)
$
 727
$
 41
$
 768
Other comprehensive income (loss):
                    
    Foreign currency translation adjustments
  
 149
  
 ―   
  
 149
  
 (24)
  
 125
    Pension and other postretirement benefits
  
 12
  
 (5)
  
 7
  
 ―   
  
 7
    Financial instruments
  
 8
  
 (3)
  
 5
  
 16
  
 21
    Total other comprehensive income (loss)
  
 169
  
 (8)
  
 161
  
 (8)
  
 153
Comprehensive income
  
 1,223
  
 (335)
  
 888
  
 33
  
 921
Preferred dividends of subsidiaries
  
 (5)
  
 ―   
  
 (5)
  
 ―   
  
 (5)
Comprehensive income, after preferred
                    
    dividends of subsidiaries
$
 1,218
$
 (335)
$
 883
$
 33
$
 916
See Notes to Condensed Consolidated Financial Statements.
 
 

 
SEMPRA ENERGY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
   
September 30,
December 31,
 
2014
2013(1)
   
(unaudited)
    
ASSETS
        
Current assets:
        
    Cash and cash equivalents
$
 667
$
 904
    Restricted cash
  
 22
  
 24
    Trade accounts receivable, net
  
 1,055
  
 1,308
    Other accounts and notes receivable, net
  
 209
  
 214
    Due from unconsolidated affiliates
  
 3
  
 4
    Income taxes receivable
  
 91
  
 85
    Deferred income taxes
  
 452
  
 301
    Inventories
  
 472
  
 287
    Regulatory balancing accounts – undercollected
  
 821
  
 556
    Other regulatory assets
  
 59
  
 38
    Fixed-price contracts and other derivatives
  
 83
  
 106
    Asset held for sale, power plant
  
 293
  
 ―   
    Other
  
 187
  
 170
        Total current assets
  
 4,414
  
 3,997
           
Investments and other assets:
        
    Restricted cash
  
 10
  
 25
    Due from unconsolidated affiliates
  
 133
  
 14
    Regulatory assets arising from pension and other postretirement
        
        benefit obligations
  
 435
  
 435
    Other regulatory assets
  
 2,048
  
 2,113
    Nuclear decommissioning trusts
  
 1,087
  
 1,034
    Investments
  
 1,797
  
 1,575
    Goodwill
  
 951
  
 1,024
    Other intangible assets
  
 418
  
 426
    Sundry
  
 1,280
  
 1,141
        Total investments and other assets
  
 8,159
  
 7,787
           
Property, plant and equipment:
        
    Property, plant and equipment
  
 35,829
  
 34,407
    Less accumulated depreciation and amortization
  
 (9,420)
  
 (8,947)
        Property, plant and equipment, net ($417 and $438 at September 30, 2014 and
            December 31, 2013, respectively, related to VIE)
  
 26,409
  
 25,460
Total assets
$
 38,982
$
 37,244
(1)
Derived from audited financial statements.
        
See Notes to Condensed Consolidated Financial Statements.
        
 
 

 
SEMPRA ENERGY
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in millions)
   
September 30,
December 31,
 
2014
2013(1)
   
(unaudited)
    
LIABILITIES AND EQUITY
        
Current liabilities:
        
    Short-term debt
$
 1,309
$
 545
    Accounts payable – trade
  
 1,153
  
 1,088
    Accounts payable – other
  
 129
  
 127
    Dividends and interest payable
  
 327
  
 271
    Accrued compensation and benefits
  
 345
  
 376
    Regulatory balancing accounts – overcollected
  
 ―   
  
 91
    Current portion of long-term debt
  
 188
  
 1,147
    Fixed-price contracts and other derivatives
  
 49
  
 55
    Customer deposits
  
 149
  
 154
    Other
  
 643
  
 515
        Total current liabilities
  
 4,292
  
 4,369
Long-term debt ($317 and $325 at September 30, 2014 and December 31, 2013, respectively,
     related to VIE)
  
 12,437
  
 11,253
           
Deferred credits and other liabilities:
        
    Customer advances for construction
  
 144
  
 155
    Pension and other postretirement benefit obligations, net of plan assets
  
 659
  
 667
    Deferred income taxes
  
 3,113
  
 2,804
    Deferred investment tax credits
  
 38
  
 42
    Regulatory liabilities arising from removal obligations
  
 2,725
  
 2,623
    Asset retirement obligations
  
 2,043
  
 2,084
    Fixed-price contracts and other derivatives
  
 220
  
 228
    Deferred credits and other
  
 1,154
  
 1,169
        Total deferred credits and other liabilities
  
 10,096
  
 9,772
           
Commitments and contingencies (Note 11)
        
           
Equity:
        
    Preferred stock (50 million shares authorized; none issued)
  
 ―   
  
 ―   
    Common stock (750 million shares authorized; 246 million and 244 million shares
        
        outstanding at September 30, 2014 and December 31, 2013, respectively; no par value)
  
 2,499
  
 2,409
    Retained earnings
  
 9,205
  
 8,827
    Accumulated other comprehensive income (loss)
  
 (371)
  
 (228)
        Total Sempra Energy shareholders’ equity
  
 11,333
  
 11,008
    Preferred stock of subsidiary
  
 20
  
 20
    Other noncontrolling interests
  
 804
  
 822
        Total equity
  
 12,157
  
 11,850
Total liabilities and equity
$
 38,982
$
 37,244
(1)
Derived from audited financial statements.
        
See Notes to Condensed Consolidated Financial Statements.
        
 
 

 
SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
   
Nine months ended September 30,
   
2014
2013
   
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
        
    Net income
$
 941
$
 768
    Adjustments to reconcile net income to net cash provided by operating activities:
        
        Depreciation and amortization
  
 866
  
 828
        Deferred income taxes and investment tax credits
  
 131
  
 327
        Gain on sale of equity interests and assets
  
 (48)
  
 (113)
        Plant closure (adjustment) loss
  
 (13)
  
 200
        Equity earnings
  
 (84)
  
 (34)
        Fixed-price contracts and other derivatives
  
 (19)
  
 (25)
        Other
  
 32
  
 23
    Net change in other working capital components
  
 (215)
  
 (454)
    Changes in other assets
  
 28
  
 (203)
    Changes in other liabilities
  
 42
  
 13
        Net cash provided by operating activities
  
 1,661
  
 1,330
           
CASH FLOWS FROM INVESTING ACTIVITIES
        
    Expenditures for property, plant and equipment
  
 (2,320)
  
 (1,785)
    Expenditures for investments and acquisition of businesses, net of cash acquired
  
 (192)
  
 (21)
    Proceeds from sale of equity interests and assets, net of cash sold
  
 92
  
 566
    Proceeds from U.S. Treasury grants
  
 ―   
  
 238
    Distributions from investments
  
 15
  
 141
    Purchases of nuclear decommissioning and other trust assets
  
 (505)
  
 (514)
    Proceeds from sales by nuclear decommissioning and other trusts
  
 498
  
 510
    Decrease in restricted cash
  
 156
  
 285
    Increase in restricted cash
  
 (139)
  
 (311)
    Advances to unconsolidated affiliates
  
 (81)
  
 ―   
    Other
  
 10
  
 (10)
        Net cash used in investing activities
  
 (2,466)
  
 (901)
           
CASH FLOWS FROM FINANCING ACTIVITIES
        
    Common dividends paid
  
 (450)
  
 (452)
    Preferred dividends paid by subsidiaries
  
 (1)
  
 (5)
    Issuances of common stock
  
 43
  
 57
    Repurchases of common stock
  
 (38)
  
 (45)
    Issuances of debt (maturities greater than 90 days)
  
 3,063
  
 1,404
    Payments on debt (maturities greater than 90 days)
  
 (1,845)
  
 (1,444)
    Proceeds from sale of noncontrolling interests, net of $25 in offering costs
  
 ―   
  
 574
    (Decrease) increase in short-term debt, net
  
 (111)
  
 81
    Net distributions to noncontrolling interests
  
 (84)
  
 (28)
    Other
  
 (5)
  
 15
        Net cash provided by financing activities
  
 572
  
 157
         
Effect of exchange rate changes on cash and cash equivalents
  
 (4)
  
 ―   
           
(Decrease) increase in cash and cash equivalents
  
 (237)
  
 586
Cash and cash equivalents, January 1
  
 904
  
 475
Cash and cash equivalents, September 30
$
 667
$
 1,061
See Notes to Condensed Consolidated Financial Statements.
        
 
 

 
SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in millions)
   
Nine months ended September 30,
 
2014
2013
 
(unaudited)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
        
    Interest payments, net of amounts capitalized
$
 359
$
 359
    Income tax payments, net of refunds
  
 154
  
 106
           
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
        
     Acquisition of businesses:
        
          Assets acquired
$
 ―   
$
 13
          Cash paid, net of cash acquired
  
 ―   
  
 (11)
          Liabilities assumed
$
 ―   
$
 2
           
    Nuclear facility plant reclassified to regulatory asset, net of depreciation and amortization
$
 ―   
$
 512
    Accrued capital expenditures
  
 385
  
 285
    Increase in capital lease obligations for investment in property, plant and equipment
  
 60
  
 ―   
    Capital expenditures recoverable by U.S. Treasury grants receivable
  
 ―   
  
 3
    Sequestration of U.S. Treasury grants receivable
  
 ―   
  
 (23)
    Dividends declared but not paid
  
 166
  
 158
    Financing of build-to-suit property
  
 49
  
 ―   
    Call premium on preferred stock of subsidiary
  
 ―   
  
 3
See Notes to Condensed Consolidated Financial Statements.
 
 

 
SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
  
(Dollars in millions)
  
 
Three months ended
Nine months ended
 
September 30,
 September 30,
 
2014
2013
2014
2013
 
(unaudited)
Operating revenues
                
    Electric
$
 1,133
$
 970
$
 2,892
$
 2,685
    Natural gas
  
 100
  
 93
  
 391
  
 381
        Total operating revenues
  
 1,233
  
 1,063
  
 3,283
  
 3,066
Operating expenses
                
    Cost of electric fuel and purchased power
  
 441
  
 315
  
 1,036
  
 776
    Cost of natural gas
  
 39
  
 36
  
 165
  
 157
    Operation and maintenance
  
 276
  
 266
  
 784
  
 852
    Depreciation and amortization
  
 134
  
 126
  
 395
  
 367
    Franchise fees and other taxes
  
 67
  
 57
  
 177
  
 158
    Plant closure (adjustment) loss
  
 ―   
  
 ―   
  
 (13)
  
 200
        Total operating expenses
  
 957
  
 800
  
 2,544
  
 2,510
Operating income
  
 276
  
 263
  
 739
  
 556
Other income, net
  
 9
  
 10
  
 29
  
 30
Interest income
  
 ―   
  
 ―   
  
 ―   
  
 1
Interest expense
  
 (51)
  
 (50)
  
 (152)
  
 (147)
Income before income taxes
  
 234
  
 223
  
 616
  
 440
Income tax expense
  
 (65)
  
 (84)
  
 (217)
  
 (147)
Net income
  
 169
  
 139
  
 399
  
 293
Earnings attributable to noncontrolling interest
  
 (12)
  
 (5)
  
 (20)
  
 (1)
Earnings
  
 157
  
 134
  
 379
  
 292
Call premium on preferred stock
  
 ―   
  
 (3)
  
 ―   
  
 (3)
Preferred dividend requirements
  
 ―   
  
 (2)
  
 ―   
  
 (4)
Earnings attributable to common shares
$
 157
$
 129
$
 379
$
 285
See Notes to Condensed Consolidated Financial Statements.
        

 

 
SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in millions)
 
SDG&E Shareholder's Equity
    
 
Pretax
Income Tax
Net-of-Tax
Noncontrolling
  
 
Amount
(Expense) Benefit
Amount
Interest (After-Tax)
Total
 
Three months ended September 30, 2014 and 2013
 
(unaudited)
2014:
                    
Net income
$
 222
$
 (65)
$
 157
$
 12
$
 169
Other comprehensive income:
                    
    Pension and other postretirement benefits
  
 1
  
 ―   
  
 1
  
 ―   
  
 1
    Financial instruments
  
 ―   
  
 ―   
  
 ―   
  
 4
  
 4
    Total other comprehensive income
  
 1
  
 ―   
  
 1
  
 4
  
 5
Comprehensive income
$
 223
$
 (65)
$
 158
$
 16
$
 174
2013:
                    
Net income
$
 218
$
 (84)
$
 134
$
 5
$
 139
Other comprehensive income (loss):
                    
    Pension and other postretirement benefits
  
 2
  
 (1)
  
 1
  
 ―   
  
 1
    Financial instruments
  
 ―   
  
 ―   
  
 ―   
  
 (1)
  
 (1)
    Total other comprehensive income (loss)
  
 2
  
 (1)
  
 1
  
 (1)
  
 ―   
Comprehensive income
$
 220
$
 (85)
$
 135
$
 4
$
 139

 
Nine months ended September 30, 2014 and 2013
 
(unaudited)
2014:
                    
Net income
$
 596
$
 (217)
$
 379
$
 20
$
 399
Other comprehensive income:
                    
    Pension and other postretirement benefits
  
 3
  
 (1)
  
 2
  
 ―   
  
 2
    Financial instruments
  
 ―   
  
 ―   
  
 ―   
  
 3
  
 3
    Total other comprehensive income
  
 3
  
 (1)
  
 2
  
 3
  
 5
Comprehensive income
$
 599
$
 (218)
$
 381
$
 23
$
 404
2013:
                    
Net income
$
 439
$
 (147)
$
 292
$
 1
$
 293
Other comprehensive income:
                    
    Pension and other postretirement benefits
  
 3
  
 (1)
  
 2
  
 ―   
  
 2
    Financial instruments
  
 ―   
  
 ―   
  
 ―   
  
 14
  
 14
    Total other comprehensive income
  
 3
  
 (1)
  
 2
  
 14
  
 16
Comprehensive income
$
 442
$
 (148)
$
 294
$
 15
$
 309
See Notes to Condensed Consolidated Financial Statements.
 
 

 
SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
   
September 30,
December 31,
   
2014
2013(1)
   
(unaudited)
    
ASSETS
        
Current assets:
        
    Cash and cash equivalents
$
 33
$
 27
    Restricted cash
  
 8
  
 6
    Accounts receivable – trade, net
  
 389
  
 266
    Accounts receivable – other, net
  
 27
  
 28
    Due from unconsolidated affiliates
  
 1
  
 1
    Income taxes receivable
  
 ―   
  
 32
    Deferred income taxes
  
 ―   
  
 103
    Inventories
  
 70
  
 86
    Regulatory balancing accounts, net
  
 772
  
 556
    Other regulatory assets
  
 52
  
 29
    Fixed-price contracts and other derivatives
  
 38
  
 61
    Other
  
 92
  
 75
        Total current assets
  
 1,482
  
 1,270
           
Other assets:
        
    Restricted cash
  
 10
  
 25
    Deferred taxes recoverable in rates
  
 787
  
 788
    Regulatory assets arising from fixed-price contracts and other derivatives
  
 39
  
 63
    Regulatory assets arising from pension and other postretirement
        
        benefit obligations
  
 92
  
 106
    Other regulatory assets
  
 815
  
 991
    Nuclear decommissioning trusts
  
 1,087
  
 1,034
    Sundry
  
 340
  
 254
        Total other assets
  
 3,170
  
 3,261
           
Property, plant and equipment:
        
    Property, plant and equipment
  
 15,086
  
 14,346
    Less accumulated depreciation and amortization
  
 (3,763)
  
 (3,500)
        Property, plant and equipment, net ($417 and $438 at September 30, 2014 and
            December 31, 2013, respectively, related to VIE)
  
 11,323
  
 10,846
Total assets
$
 15,975
$
 15,377
(1)
Derived from audited financial statements.
        
See Notes to Condensed Consolidated Financial Statements.
        
 
 

 
SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in millions)
   
September 30,
December 31,
   
2014
2013(1)
   
(unaudited)
    
LIABILITIES AND EQUITY
        
Current liabilities:
        
    Short-term debt
$
 ―   
$
 59
    Accounts payable
  
 402
  
 420
    Due to unconsolidated affiliates
  
 36
  
 39
    Income taxes payable
  
 8
  
 ―   
    Deferred income taxes
  
 41
  
 ―   
    Dividends and interest payable
  
 51
  
 39
    Accrued compensation and benefits
  
 111
  
 113
    Current portion of long-term debt
  
 115
  
 29
    Fixed-price contracts and other derivatives
  
 38
  
 38
    Customer deposits
  
 69
  
 71
    Other
  
 398
  
 271
        Total current liabilities
  
 1,269
  
 1,079
Long-term debt ($317 and $325 at September 30, 2014 and December 31, 2013,
    respectively, related to VIE)
  
 4,573
  
 4,525
           
Deferred credits and other liabilities:
        
    Customer advances for construction
  
 40
  
 34
    Pension and other postretirement benefit obligations, net of plan assets
  
 120
  
 132
    Deferred income taxes
  
 2,054
  
 2,021
    Deferred investment tax credits
  
 22
  
 24
    Regulatory liabilities arising from removal obligations
  
 1,535
  
 1,403
    Asset retirement obligations
  
 759
  
 861
    Fixed-price contracts and other derivatives
  
 155
  
 175
    Deferred credits and other
  
 362
  
 404
        Total deferred credits and other liabilities
  
 5,047
  
 5,054
           
Commitments and contingencies (Note 11)
        
           
Equity:
        
    Common stock (255 million shares authorized; 117 million shares outstanding;
        
        no par value)
  
 1,338
  
 1,338
    Retained earnings
  
 3,678
  
 3,299
    Accumulated other comprehensive income (loss)
  
 (7)
  
 (9)
        Total SDG&E shareholder's equity
  
 5,009
  
 4,628
    Noncontrolling interest
  
 77
  
 91
        Total equity
  
 5,086
  
 4,719
Total liabilities and equity
$
 15,975
$
 15,377
(1)
Derived from audited financial statements.
        
See Notes to Condensed Consolidated Financial Statements.
        
 
 

 
SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
 
Nine months ended September 30,
 
2014
2013
 
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
        
    Net income
$
 399
$
 293
    Adjustments to reconcile net income to net cash provided by operating activities:
        
        Depreciation and amortization
  
 395
  
 367
        Deferred income taxes and investment tax credits
  
 193
  
 100
        Plant closure (adjustment) loss
  
 (13)
  
 200
        Fixed-price contracts and other derivatives
  
 (5)
  
 (7)
        Other
  
 (30)
  
 (9)
    Net change in other working capital components
  
 (252)
  
 (284)
    Changes in other assets
  
 106
  
 (164)
    Changes in other liabilities
  
 28
  
 13
        Net cash provided by operating activities
  
 821
  
 509
         
CASH FLOWS FROM INVESTING ACTIVITIES
        
    Expenditures for property, plant and equipment
  
 (790)
  
 (679)
    Purchases of nuclear decommissioning trust assets
  
 (501)
  
 (511)
    Proceeds from sales by nuclear decommissioning trusts
  
 498
  
 507
    Decrease in restricted cash
  
 109
  
 54
    Increase in restricted cash
  
 (96)
  
 (52)
    Other
  
 (16)
  
 3
        Net cash used in investing activities
  
 (796)
  
 (678)
         
CASH FLOWS FROM FINANCING ACTIVITIES
        
    Preferred dividends paid
  
 ―   
  
 (4)
    Issuances of long-term debt
  
 100
  
 450
    Payments on long-term debt
  
 (22)
  
 (183)
    Decrease in short-term debt, net
  
 (59)
  
 ―   
    Capital distribution made by Otay Mesa VIE
  
 (38)
  
 (12)
    Other
  
 ―   
  
 (2)
        Net cash (used in) provided by financing activities
  
 (19)
  
 249
         
Increase in cash and cash equivalents
  
 6
  
 80
Cash and cash equivalents, January 1
  
 27
  
 87
Cash and cash equivalents, September 30
$
 33
$
 167
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
        
    Interest payments, net of amounts capitalized
$
 136
$
 127
    Income tax (refunds) payments, net
  
 (4)
  
 33
         
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
        
    Nuclear facility plant reclassified to regulatory asset, net of depreciation and amortization
$
 ―   
$
 512
    Accrued capital expenditures
  
 118
  
 108
    Increase in capital lease obligations for investment in property, plant and equipment
  
 60
  
 ―   
Call premium on preferred stock
  
 ―   
  
 3
    Dividends declared but not paid
  
 ―   
  
 1
See Notes to Condensed Consolidated Financial Statements.
 
 

 
SOUTHERN CALIFORNIA GAS COMPANY
        
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
        
(Dollars in millions)
        
 
Three months ended
September 30,
Nine months ended
September 30,
 
2014
2013
2014
2013
 
(unaudited)
                 
Operating revenues
$
 855
$
 807
$
 2,857
$
 2,694
Operating expenses
                
    Cost of natural gas
  
 237
  
 209
  
 1,066
  
 966
    Operation and maintenance
  
 326
  
 314
  
 968
  
 936
    Depreciation and amortization
  
 109
  
 100
  
 321
  
 280
    Franchise fees and other taxes
  
 30
  
 29
  
 98
  
 95
        Total operating expenses
  
 702
  
 652
  
 2,453
  
 2,277
Operating income
  
 153
  
 155
  
 404
  
 417
Other income, net
  
 6
  
 2
  
 13
  
 9
Interest expense
  
 (17)
  
 (17)
  
 (50)
  
 (52)
Income before income taxes
  
 142
  
 140
  
 367
  
 374
Income tax expense
  
 (44)
  
 (38)
  
 (110)
  
 (107)
Net income
  
 98
  
 102
  
 257
  
 267
Preferred dividend requirements
  
 ―   
  
 ―   
  
 (1)
  
 (1)
Earnings attributable to common shares
$
 98
$
 102
$
 256
$
 266
See Notes to Condensed Consolidated Financial Statements.
        


SOUTHERN CALIFORNIA GAS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in millions)
 
Pretax
Income Tax
Net-of-Tax
 
Amount
(Expense) Benefit
Amount
 
Three months ended September 30, 2014 and 2013
 
(unaudited)
2014:
            
Net income
$
 142
$
 (44)
$
 98
Other comprehensive income:
            
   Pension and other postretirement benefits
  
 4
  
 (2)
  
 2
   Total other comprehensive income
  
 4
  
 (2)
  
 2
Comprehensive income
$
 146
$
 (46)
$
 100
2013:
            
Net income/Comprehensive income
$
 140
$
 (38)
$
 102
 
Nine months ended September 30, 2014 and 2013
 
(unaudited)
2014:
            
Net income
$
 367
$
 (110)
$
 257
Other comprehensive income:
            
   Pension and other postretirement benefits
  
 4
  
 (2)
  
 2
   Total other comprehensive income
  
 4
  
 (2)
  
 2
Comprehensive income
$
 371
$
 (112)
$
 259
2013:
            
Net income
$
 374
$
 (107)
$
 267
Other comprehensive income:
            
   Financial instruments
  
 1
  
 ―   
  
 1
   Total other comprehensive income
  
 1
  
 ―   
  
 1
Comprehensive income
$
 375
$
 (107)
$
 268
See Notes to Condensed Consolidated Financial Statements.
            

 
 

 
SOUTHERN CALIFORNIA GAS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
   
September 30,
December 31,
   
2014
2013(1)
   
(unaudited)
    
ASSETS
        
Current assets:
        
    Cash and cash equivalents
$
 25
$
27
    Accounts receivable – trade, net
  
 324
  
595
    Accounts receivable – other, net
  
 55
  
97
    Due from unconsolidated affiliates
  
 274
  
21
    Income taxes receivable
  
 29
  
25
    Inventories
  
 221
  
69
    Regulatory balancing accounts, net
  
 49
  
 ―   
    Other regulatory assets
  
 6
  
5
    Other
  
 35
  
34
        Total current assets
  
 1,018
  
873
         
Other assets:
        
    Regulatory assets arising from pension obligations
  
 341
  
326
    Other regulatory assets
  
 399
  
262
    Other postretirement benefit plan assets, net of plan liabilities
  
 93
  
95
    Sundry
  
 137
  
124
        Total other assets
  
 970
  
807
         
Property, plant and equipment:
        
    Property, plant and equipment
  
 12,542
  
11,831
    Less accumulated depreciation and amortization
  
 (4,576)
  
(4,364)
        Property, plant and equipment, net
  
 7,966
  
 7,467
Total assets
$
 9,954
$
 9,147
(1)
Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.
 
 

 
SOUTHERN CALIFORNIA GAS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in millions)
   
September 30,
December 31,
   
2014
2013(1)
   
(unaudited)
    
LIABILITIES AND SHAREHOLDERS' EQUITY
        
Current liabilities:
        
    Short-term debt
$
 ―   
$
42
    Accounts payable – trade
  
 336
  
346
    Accounts payable – other
  
 83
  
79
    Due to unconsolidated affiliate
  
 ―   
  
16
    Deferred income taxes
  
 164
  
45
    Accrued compensation and benefits
  
 131
  
141
    Regulatory balancing accounts, net
  
 ―   
  
91
    Current portion of long-term debt
  
 ―   
  
252
    Customer deposits
  
 74
  
75
    Other
  
 125
  
125
        Total current liabilities
  
 913
  
1,212
Long-term debt
  
 1,906
  
1,159
Deferred credits and other liabilities:
        
    Customer advances for construction
  
 102
  
108
    Pension obligation, net of plan assets
  
 357
  
339
    Regulatory liabilities arising from other postretirement benefit assets
  
 93
  
95
    Deferred income taxes
  
 1,050
  
993
    Deferred investment tax credits
  
 16
  
18
    Regulatory liabilities arising from removal obligations
  
 1,173
  
1,205
    Asset retirement obligations
  
 1,245
  
1,182
    Deferred credits and other
  
 292
  
287
        Total deferred credits and other liabilities
  
 4,328
  
4,227
         
Commitments and contingencies (Note 11)
        
         
Shareholders' equity:
        
    Preferred stock
  
 22
  
22
    Common stock (100 million shares authorized; 91 million shares outstanding;
        
        no par value)
  
 866
  
866
    Retained earnings
  
 1,935
  
1,679
    Accumulated other comprehensive income (loss)
  
 (16)
  
(18)
        Total shareholders' equity
  
2,807
  
2,549
Total liabilities and shareholders' equity
$
 9,954
$
9,147
(1)
Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.
 
 

 
SOUTHERN CALIFORNIA GAS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
 
Nine months ended September 30,
 
2014
2013
 
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
        
    Net income
$
 257
$
 267
    Adjustments to reconcile net income to net cash provided by operating activities:
        
        Depreciation and amortization
  
 321
  
 280
        Deferred income taxes and investment tax credits
  
 94
  
 72
        Other
  
 (2)
  
 (6)
    Net change in other working capital components
  
 (19)
  
 (56)
    Changes in other assets
  
 (70)
  
 (65)
    Changes in other liabilities
  
 15
  
 (5)
        Net cash provided by operating activities
  
 596
  
 487
         
CASH FLOWS FROM INVESTING ACTIVITIES
        
    Expenditures for property, plant and equipment
  
 (764)
  
 (521)
    (Increase) decrease in loans to affiliates, net
  
 (281)
  
 17
        Net cash used in investing activities
  
 (1,045)
  
 (504)
         
CASH FLOWS FROM FINANCING ACTIVITIES
        
    Common dividends paid
  
 ―   
  
 (50)
    Preferred dividends paid
  
 (1)
  
 (1)
    Issuances of long-term debt
  
 747
  
 ―   
    Repayment of long-term debt
  
 (250)
  
 ―   
    Decrease in short-term debt, net
  
 (42)
  
 ―   
    Other
  
 (7)
  
 ―   
        Net cash provided by (used in) financing activities
  
 447
  
 (51)
         
Decrease in cash and cash equivalents
  
 (2)
  
 (68)
Cash and cash equivalents, January 1
  
 27
  
 83
Cash and cash equivalents, September 30
$
 25
$
 15
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
        
    Interest payments, net of amounts capitalized
$
 43
$
 44
    Income tax payments, net of refunds
  
 19
  
 66
         
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES
        
    Accrued capital expenditures
$
 137
$
 97
See Notes to Condensed Consolidated Financial Statements.

 
 
 
 
SEMPRA ENERGY AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 

 
NOTE 1. GENERAL
 

 
PRINCIPLES OF CONSOLIDATION
 
 
Sempra Energy
 
Sempra Energy’s Condensed Consolidated Financial Statements include the accounts of Sempra Energy, a California-based Fortune 500 energy-services holding company, and its consolidated subsidiaries and variable interest entities (VIEs). Sempra Energy’s principal operating units are
 
§  
San Diego Gas & Electric Company (SDG&E) and Southern California Gas Company (SoCalGas), which are separate, reportable segments;
 
§  
Sempra International, which includes our Sempra South American Utilities and Sempra Mexico reportable segments; and
 
§  
Sempra U.S. Gas & Power, which includes our Sempra Renewables and Sempra Natural Gas reportable segments.
 
We provide descriptions of each of our segments in Note 12.
 
We refer to SDG&E and SoCalGas collectively as the California Utilities, which do not include the utilities in our Sempra International and Sempra U.S. Gas & Power operating units. Sempra Global is the holding company for most of our subsidiaries that are not subject to California utility regulation. All references in these Notes to “Sempra International,” “Sempra U.S. Gas & Power” and their respective reportable segments are not intended to refer to any legal entity with the same or similar name.
 
Our Sempra Mexico segment includes the operating companies of our subsidiary, Infraestructura Energética Nova, S.A.B. de C.V. (IEnova), as well as certain holding companies and risk management activity. We discuss IEnova further in Note 5 under “Shareholders’ Equity and Noncontrolling Interests – Sale of Noncontrolling Interests.”
 
Sempra Energy uses the equity method to account for investments in affiliated companies over which we have the ability to exercise significant influence, but not control. We discuss our investments in unconsolidated entities in Notes 4 and 13 herein and in Notes 3 and 4 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2013 (the Annual Report), which includes the combined reports for Sempra Energy, SDG&E and SoCalGas.
 
 
SDG&E
 
SDG&E’s Condensed Consolidated Financial Statements include its accounts and the accounts of a VIE of which SDG&E is the primary beneficiary, as we discuss in Note 5 under “Variable Interest Entities.” SDG&E’s common stock is wholly owned by Enova Corporation, which is a wholly owned subsidiary of Sempra Energy.
 
 
SoCalGas
 
SoCalGas’ Condensed Consolidated Financial Statements include its accounts and the de minimus accounts of inactive subsidiaries. SoCalGas’ common stock is wholly owned by Pacific Enterprises (PE), which is a wholly owned subsidiary of Sempra Energy.
 

 
BASIS OF PRESENTATION
 

This is a combined report of Sempra Energy, SDG&E and SoCalGas. We provide separate information for SDG&E and SoCalGas as required. References in this report to “we,” “our” and “Sempra Energy Consolidated” are to Sempra Energy and its consolidated entities, unless otherwise indicated by the context. We have eliminated intercompany accounts and transactions within the consolidated financial statements of each reporting entity.
 
We have prepared the Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) and in accordance with the interim-period-reporting requirements of Form 10-Q. Results of operations for interim periods are not necessarily indicative of results for the entire year. We evaluated events and transactions that occurred after September 30, 2014 through the date the financial statements were issued and, in the opinion of management, the accompanying statements reflect all adjustments necessary for a fair presentation. These adjustments are only of a normal, recurring nature.
 
All December 31, 2013 balance sheet information in the Condensed Consolidated Financial Statements has been derived from our audited 2013 consolidated financial statements. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the interim-period-reporting provisions of U.S. GAAP and the Securities and Exchange Commission.
 
You should read the information in this Quarterly Report in conjunction with the Annual Report.
 
Sempra South American Utilities has controlling interests in two electric distribution utilities in South America. Sempra Natural Gas owns Mobile Gas Service Corporation (Mobile Gas) in southwest Alabama and Willmut Gas Company (Willmut Gas) in Mississippi, and Sempra Mexico owns Ecogas México, S. de R.L. de C.V. (Ecogas) in northern Mexico, all natural gas distribution utilities. The California Utilities, Sempra Natural Gas’ Mobile Gas and Willmut Gas, and Sempra Mexico’s Ecogas prepare their financial statements in accordance with U.S. GAAP provisions governing regulated operations, as we discuss in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.
 
We describe our significant accounting policies in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report. We follow the same accounting policies for interim reporting purposes, except for the adoption of new accounting standards as we discuss in Note 2.
 


 
 
NOTE 2. NEW ACCOUNTING STANDARDS
 

We describe below recent pronouncements that have had or may have a significant effect on our financial statements. We do not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to our financial condition, results of operations, cash flows or disclosures.
 


 
SEMPRA ENERGY, SDG&E AND SOCALGAS
 

Accounting Standards Update (ASU) 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (ASU 2013-11): ASU 2013-11 provides explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. ASU 2013-11 requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. If a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purposes, an entity is required to present the unrecognized tax benefit in the financial statements as a liability instead of combined with deferred tax assets.
 
We adopted ASU 2013-11 on January 1, 2014 as required, and it did not significantly affect our financial condition, results of operations or cash flows.
 

ASU 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09): ASU 2014-09 provides accounting guidance for revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers. The guidance also provides a model for the measurement and recognition of gains and losses on the sale of certain nonfinancial assets, such as property and equipment, including real estate. This guidance must be adopted using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach.
 

We will adopt ASU 2014-09 on January 1, 2017 as required, and we are currently evaluating the effect of adopting it on our financial condition, results of operations and cash flows.


 
 
NOTE 3. ACQUISITION AND DIVESTITURE ACTIVITY
 

During the nine months ended September 30, 2014 and 2013, Sempra Energy completed the sale of equity interests in various subsidiaries that were previously wholly owned. The following table summarizes the deconsolidation of those subsidiaries, and we discuss each transaction below:
 


DECONSOLIDATION OF SUBSIDIARIES
(Dollars in millions)
  
   
Energía
Sierra Juárez
Copper Mountain
Solar 3
Sempra Energy
Consolidated
   
At July 16
At March 13
  
2014:
        
Proceeds from sale, net of negligible transaction costs
$
 26
$
 68
$
 94
Cash
  
 (2)
  
 (2)
  
 (4)
Other current assets
  
 (11)
  
 ―   
  
 (11)
Property, plant and equipment, net
  
 (137)
  
 (247)
  
 (384)
Other assets
  
 (16)
  
 (11)
  
 (27)
Accounts payable and accrued expenses
  
 10
  
 82
  
 92
Due to affiliate
  
 39
  
 ―   
  
 39
Long-term debt, including current portion
  
 82
  
 97
  
 179
Other liabilities
  
 7
  
 3
  
 10
Accumulated other comprehensive income
  
 (5)
  
 (2)
  
 (7)
Gain on sale of equity interests
  
 (19)
  
 (27)
  
 (46)
Equity method investments upon deconsolidation
$
 (26)
$
 (39)
$
 (65)
               
   
Mesquite
Solar 1
Copper Mountain
Solar 2
Sempra Energy
Consolidated
   
At September 19
At July 11
  
2013:
        
Proceeds from sale, net of transaction costs(1)
$
 100
$
 68
$
 168
Property, plant and equipment, net
  
 (461)
  
 (266)
  
 (727)
Other assets
  
 (72)
  
 (30)
  
 (102)
Long-term debt, including current portion
  
 297
  
 146
  
 443
Other liabilities
  
 31
  
 19
  
 50
Gain on sale of equity interests
  
 (36)
  
 (4)
  
 (40)
Equity method investments upon deconsolidation
$
 (141)
$
 (67)
$
 (208)
(1)
Transaction costs were $3 million at both Mesquite Solar 1 and Copper Mountain Solar 2.

 
SEMPRA MEXICO
 

In July 2014, Sempra Mexico completed the sale of a 50-percent interest in the 155-megawatt (MW) first phase of its Energía Sierra Juárez wind project to a wholly owned subsidiary of InterGen N.V. for cash proceeds of $24 million, net of $2 million cash sold. Sempra Mexico recognized a pretax gain on the sale of $19 million ($14 million after-tax) included in Gain on Sale of Equity Interests and Assets on our Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 2014. The gain on sale included a $7 million after-tax gain attributable to the remeasurement of the retained investment to fair value. Our remaining 50-percent interest in Energía Sierra Juárez is accounted for under the equity method.
 


 
SEMPRA RENEWABLES
 

In July 2013, Sempra Renewables formed a joint venture with Consolidated Edison Development (ConEdison Development), a nonrelated party, by selling a 50-percent interest in its 150-MW Copper Mountain Solar 2 solar power facility for $71 million in cash. Sempra Renewables recognized a pretax gain on the sale of $4 million ($2 million after-tax), included in Gain on Sale of Equity Interests and Assets on our Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 2013.
 
In September 2013, Sempra Renewables acquired the rights to develop the 75-MW Broken Bow 2 Wind project in Custer County, Nebraska. The project achieved commercial operation in October 2014. Sempra Renewables does not have an ownership interest in the Broken Bow 1 Wind Farm.
 
In September 2013, Sempra Renewables formed a joint venture with ConEdison Development by selling a 50-percent interest in its 150-MW Mesquite Solar 1 solar power facility for $103 million in cash. Sempra Renewables recognized a pretax gain on the sale of $36 million ($22 million after-tax), included in Gain on Sale of Equity Interests and Assets on our Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 2013.
 
In March 2014, Sempra Renewables formed a joint venture with ConEdison Development by selling a 50-percent interest in its 250-MW Copper Mountain Solar 3 solar power facility for $66 million in cash, net of $2 million cash sold. Sempra Renewables recognized a pretax gain on the sale of $27 million ($16 million after-tax), included in Gain on Sale of Equity Interests and Assets on our Condensed Consolidated Statement of Operations for the nine months ended September 30, 2014.
 
In May 2014, Sempra Renewables invested $109 million, subject to a commitment for a purchase price adjustment to be based on financial position at closing, to become a 50-percent partner with ConEdison Development in four solar projects in California. We discuss our investment in the California solar partnership further in Note 4.
 
Our remaining 50-percent interests in Copper Mountain Solar 2, Mesquite Solar 1 and Copper Mountain Solar 3 are accounted for under the equity method. Based on the nature of the underlying assets, these solar investments are considered in-substance real estate. Therefore, in accordance with applicable U.S. GAAP, for each of these solar investment transactions, the equity method investments were measured at their historical cost and no portion of the gains was attributable to a remeasurement of the retained investments to fair value.
 


 
SEMPRA NATURAL GAS
 


 
Mesquite Power Sale
 

In February 2013, Sempra Natural Gas sold one 625-MW block of its 1,250-MW Mesquite Power natural gas-fired power plant in Arizona, including a portion related to common plant, for approximately $371 million in cash to the Salt River Project Agricultural Improvement and Power District (SRP). We recognized a pretax gain on the sale of $74 million ($44 million after-tax), included in Gain on Sale of Equity Interests and Assets on our Condensed Consolidated Statement of Operations for the nine months ended September 30, 2013.
 


 
Cameron LNG
 

October 1, 2014 was the effective date of the formation of a joint venture partnership among Sempra Energy and three project partners involving Sempra Natural Gas’ Cameron LNG facility in Louisiana, as we discuss in Note 13. As of October 1, 2014, Sempra Natural Gas will account for its investment in the Cameron LNG joint venture under the equity method.
 


 
Asset Held for Sale, Power Plant
 

In January 2014, management approved a formal plan to market and sell the remaining 625-MW block of the Mesquite Power plant. In October 2014, Sempra Natural Gas entered into a definitive agreement to sell the remaining 625-MW block of the Mesquite Power plant to ArcLight Capital Partners, LLC. We anticipate the sale will close late in 2014 or early in 2015, subject to customary regulatory approvals and assignment to the buyer of a 25-year power sales contract associated with the plant.
 
We classify assets as held for sale when management approves and commits to a formal plan to actively market an asset for sale and we expect the sale to close within the next twelve months. Upon classifying an asset as held for sale, we record the asset at the lower of its carrying value or its estimated fair value reduced for selling costs, and we stop recording depreciation expense on the asset.
 


At September 30, 2014, the carrying amount of the major classes of assets and related liability held for sale associated with the plant includes the following:
 


(Dollars in millions)
Property, plant and equipment, net
$
 290
Inventories
  
 3
   Total assets held for sale
  
 293
Liability held for sale - asset retirement obligation(1)
  
 (6)
 
$
 287
(1)
Included in Other Current Liabilities on the Condensed Consolidated Balance Sheets.

The estimated fair value, including estimated costs to sell, exceeds the carrying amount at September 30, 2014.

 
 
NOTE 4. INVESTMENTS IN UNCONSOLIDATED ENTITIES
 

We provide additional information concerning our equity method investments in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report.
 


 
SEMPRA SOUTH AMERICAN UTILITIES
 

Sempra South American Utilities previously owned 43 percent of two Argentine natural gas utility holding companies, Sodigas Pampeana and Sodigas Sur. In the first quarter of 2013, we recorded a noncash impairment charge of $10 million ($7 million after-tax) to reduce the carrying value of our investments to estimated fair value at that time. The net charge is reported in Equity Earnings, Net of Income Tax on the Condensed Consolidated Statement of Operations for the nine months ended September 30, 2013. In June 2013, we completed the sale of our Argentine investments for $13 million in cash. Our results for the nine months ended September 30, 2013 include an additional $7 million loss ($4 million after-tax) on the sale, which is also included in Equity Earnings, Net of Income Tax.
 


 
SEMPRA RENEWABLES
 

In May 2014, Sempra Renewables invested $109 million, subject to a purchase price adjustment, to become a 50-percent partner with ConEdison Development in four solar projects in California. The joint venture includes ConEdison Development’s CED California Holdings, LLC portfolio, which consists of the 50-MW Alpaugh 50, the 20-MW Alpaugh North and the 20-MW White River 1 facilities in Tulare County, and the 20-MW Corcoran 1 facility in Kings County (collectively, the California solar partnership). The renewable power from all of the projects has been sold under long-term contracts. Sempra Renewables and ConEdison Development each own a 50-percent interest in the four fully operating solar facilities.
 
Additionally, Sempra Renewables invested cash of $76 million and $5 million in its joint ventures during the nine months ended September 30, 2014 and 2013, respectively.
 


 
RBS SEMPRA COMMODITIES
 

RBS Sempra Commodities LLP (RBS Sempra Commodities) is a United Kingdom limited liability partnership that owned and operated commodities-marketing businesses previously owned by us. We and our partner in the joint venture, The Royal Bank of Scotland plc (RBS), sold substantially all of the partnership’s businesses and assets in four separate transactions completed in 2010 and early 2011. We account for our investment in RBS Sempra Commodities under the equity method, and report our share of partnership earnings and other associated costs, if any, in Equity Earnings, Before Income Tax on our Condensed Consolidated Statements of Operations.
 
We received a distribution from the partnership of $50 million in May 2013. The investment balance of $73 million at September 30, 2014 reflects remaining distributions expected to be received from the partnership in accordance with provisions of a 2011 agreement between us and RBS that addresses the wind-down of the partnership and the distribution of the partnership’s remaining assets. The amount of distributions may